As promised, in this article, I’ll explain how QM, in both “safe harbor” and “rebuttable presumption” form, serves to protect lenders and investors from a defaulting borrowers’ claims that a lender failed in some aspect of underwriting prophecy or crystal-ball gazing.
If you originate a QM, courts must presume that you followed the eight underwriting guidelines found in ATR and therefore used very reasonable judgment under the circumstances. The borrower’s defense can’t even make it past the motion to dismiss stage in court, saving the lender and investor potentially a hundred thousand dollars or more in legal and carrying costs and delays.
Now—the CFPB took the QM protection and with it, created two levels of protection. The first level is what people call the “safe harbor” QM, which is exactly what I described above. The second, slightly lower level is the “rebuttable presumption” QM, which doesn’t afford as many protections but is still better than a non-QM loan. With a rebuttable presumption QM, the borrower can still offer up a defense, but must present enough evidence at trial to rebut the presumption the court is required to have that the lender did use sound underwriting standards. QM, then, puts the onus on the borrower.
The CFPB is also allowing for more QM carve-outs from the GSEs. It is expected that there will be FNMA QMs, FHLMC QMs and GNMA QMs at some point soon, which will stay with us until the GSEs are no longer under conservatorship.
There are obviously a lot of details here that I left out for brevity. But simply stated, a QM is a mortgage that adhered to the eight underwriting standards in ATR plus additional safeguards such as tighter debt-to-income ratio caps and the like. Beginning next January you won’t originate a QM loan that did not comply with the ATR standard, and you won’t originate a loan that failed to comply with ATR.
So now you know. QM is your friend.
